Determining Basis for Partners and Shareholders: AAA vs. Capital Accounts, Debt-Financed Losses, Loans and Guarantees

Basis in a flow-through business is key to deducting losses and calculating gains or losses on disposition. Certain losses deductible by partners in partnerships are not deductible by S corporation shareholders. Entity-level debt and personal guarantees are treated differently for these otherwise similar entities.

Shareholders track their basis using accumulated adjustment accounts, while partners use capital accounts. Both are increased by flow-through income and contributions of cash or property and reduced by distributions and deductions. Similarly, both owners are also subject to at-risk rules before loss deductions are allowed.

Planning techniques are available to increase basis in these flow-through entities to deduct current year losses. Ordering rules for loss deductions and restoration of basis are complex. Tax practitioners need to understand the similarities and differences in basis calculations for owners of both partnerships and S corporations to report annual flow-through income and deductions and ultimately the gain or loss on the disposition of these entities.

Listen as our panel of flow-through tax experts discusses how basis is calculated for partnerships and S corporations, planning techniques to increase basis and deductions for losses when and if they occur, and recent cases challenging basis calculations for flow-through entities.

1. Basis overview
2. AAA vs. capital accounts
3. Annual operating increases and decreases to basis
4. Notes payable and guarantees
5. Loans from owners
6. Debt-financed losses
7. Distributions
8. Basis restoration
9. Planning techniques
10. Recent cases

The panel will cover these and other critical issues:

• Ordering rules for deducting losses from flow-through entities
• Caveats of decreases in debt basis
• Differences in entity-level debt and basis computations for LLCs and S corporations
• Strategies to increase basis for allowable losses
• How shareholder and partner loans, guarantees, and repayments impact basis calculations

Learning Objectives

After completing this course, you will be able to:

• Understand the ordering rules for deducting losses from pass-through entities
• Differentiate entity-level debt and basis computations between partnerships and S corporations
• Identify strategies to increase basis for allowable losses
• Determine how shareholder and partner loans, guarantees, and repayments impact basis calculations
• Verify whether inside or outside basis is at issue
• Recognize the impact of the different ordering rules

• Field of Study: Taxes
• Level of Knowledge: Intermediate
• Advance Preparation: None
• Teaching Method: Seminar/Lecture
• Delivery Method: Group-Internet (via computer)
• Attendance Monitoring Method: Attendance is monitored electronically via a participant's PIN and through a series of attendance verification prompts displayed throughout the program
• Prerequisite: Three years+ business or public firm experience preparing complex tax forms and schedules, supervising other preparers or accountants. Specific knowledge and understanding of pass-through taxation, including taxation of partnerships, S corporations and their respective partners and shareholders.

Strafford Publications, Inc. is registered with the National Association of State Boards of Accountancy (NASBA) as a sponsor of continuing professional education on the National Registry of CPE Sponsors. State boards of Accountancy have final authority on the acceptance of individual courses for CPE Credits. Complaints regarding registered sponsons may be submitted to NASBA through its website: www.nasbaregistry.org.

IRS Approved Provider

Strafford is an IRS-approved continuing education provider offering certified courses for Enrolled Agents (EA) and Tax Return Preparers (RTRP).